UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000
Commission File No.: 0-22192
PERFORMANCE FOOD GROUP COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Tennessee 54-0402940
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
6800 Paragon Place, Suite 500
Richmond, Virginia 23230
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code
(804) 285-7340
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements
for the past 90 days.
X Yes No
As of May 11, 2000, 13,711,032 shares of the
Registrant's Common Stock were outstanding.
Independent Accountants' Review Report
The Board of Directors and Shareholders
Performance Food Group Company:
We have reviewed the accompanying condensed
consolidated balance sheet of Performance Food Group
Company and subsidiaries (the Company) as of April 1,
2000, and the related condensed consolidated statements
of earnings and cash flows for the three-month periods
ended April 1, 2000 and April 3, 1999. These condensed
consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified
Public Accountants. A review of interim financial
information consists principally of applying analytical
procedures to financial data and making inquiries of
persons responsible for financial and accounting
matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted
auditing standards, the objective of which is the
expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the condensed
consolidated financial statements referred to above for
them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with
generally accepted auditing standards, the consolidated
balance sheet of Performance Food Group Company and
subsidiaries as of January 1, 2000, and the related
consolidated statements of earnings, shareholders'
equity and cash flows for the year then ended (not
presented herein); and in our report dated February 7,
2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed
consolidated balance sheet as of January 1, 2000 is
fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been
derived.
/s/KPMG LLP
Richmond, Virginia
May 2, 2000
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
April 1, January 1,
2000 2000
(Unaudited)
Assets
Current assets:
Cash $ 1,870 $ 5,606
Trade accounts and notes receivable, net 127,713 119,126
Inventories 120,528 108,550
Other current assets 9,842 9,600
Total current assets 259,953 242,882
Property, plant and equipment, net 121,682 113,930
Intangible assets, net 104,133 103,328
Other assets 1,860 1,905
Total assets $ 487,628 $ 462,045
Liabilities and Shareholders' Equity
Current liabilities:
Outstanding checks in excess of deposits $ 20,900 $ 14,082
Current installments of long-term debt 696 703
Trade accounts payable 135,762 116,821
Other current liabilities 44,273 40,397
Total current liabilities 201,631 172,003
Long-term debt, excluding current installments 89,905 92,404
Deferred income taxes 8,379 8,294
Total liabilities 299,915 272,701
Shareholders' equity 187,713 189,344
Total liabilities and shareholders' equity $ 487,628 $ 462,045
See accompanying notes to unaudited condensed consolidated financial
statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
April 1, April 3,
2000 1999
Net sales $ 579,750 $ 466,378
Cost of goods sold 502,341 403,385
Gross profit 77,409 62,993
Operating expenses 69,845 56,713
Operating profit 7,564 6,280
Other income (expense):
Interest expense (1,389) (1,286)
Nonrecurring merger expenses - (3,812)
Other, net 69 (6)
Other expense, net (1,320) (5,104)
Earnings before income taxes 6,244 1,176
Income tax expense 2,373 525
Net earnings $ 3,871 $ 651
Basic net earnings per common share $ 0.28 $ 0.05
Weighted average common shares outstanding 14,038 13,479
Diluted net earnings per common share $ 0.27 $ 0.05
Weighted average common shares and dilutive
potential common shares outstanding 14,413 14,187
See accompanying notes to unaudited condensed consolidated financial
statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
April 1, April 3,
2000 1999
Cash flows from operating activities:
Net earnings $ 3,871 $ 651
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 3,181 2,583
Amortization 951 670
ESOP contributions applied to principal of ESOP debt 135 132
Loss (gain) on disposal of property, plant and equipment (19) 10
Change in operating assets and liabilities, net 2,095 1,035
Net cash provided by operating activities 10,214 5,081
Cash flows from investing activities:
Purchases of property, plant and equipment (10,980) (3,928)
Proceeds from sale of property, plant and equipment 66 52
Increase in intangibles and other assets (1,711) (4,815)
Net cash used by investing activities (12,625) (8,691)
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits 6,818 (2,673)
Net borrowings (payments) on notes payable to banks (5,019) 14,443
Proceeds from issuance of long-term debt 2,681 321
Principal payments on long-term debt (168) (8,607)
Repurchases of common stock (6,630) -
Distributions of pooled company - (1,025)
Employee stock option, incentive and employee stock purchase
plans and related income tax benefits 993 865
Net cash provided by (used for) financing activities (1,325) 3,324
Net decrease in cash (3,736) (286)
Cash at beginning of period 5,606 7,796
Cash at end of period $ 1,870 $ 7,510
See accompanying notes to unaudited condensed consolidated financial
statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial
Statements
April 1, 2000 and April 2, 1999
1. Basis of Presentation
The accompanying condensed consolidated financial
statements of Performance Food Group Company and
subsidiaries (the "Company") are unaudited, with the
exception of the January 1, 2000 condensed consolidated
balance sheet, which was derived from the audited
consolidated balance sheet in the Company's latest
Annual Report on Form 10-K. The unaudited condensed
consolidated financial statements have been prepared in
accordance with generally accepted accounting
principles for interim financial reporting, and in
accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited
condensed consolidated financial statements contained
in this report reflect all adjustments, consisting of
only normal recurring accruals, which are necessary for
a fair presentation of the financial position and the
results of operations for the interim periods
presented. The results of operations for any interim
period are not necessarily indicative of results for
the full year.
These unaudited condensed consolidated financial
statements, note disclosures and other information
should be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
2. Business Combinations
On February 26, 1999, the Company completed a
merger with NorthCenter Foodservice Corporation
("NCF"), in which NCF became a wholly owned subsidiary
of the Company. NCF was a privately owned foodservice
distributor based in Augusta, Maine and had 1998 net
sales of approximately $98 million. The merger was
accounted for as a pooling-of-interests and resulted in
the issuance of approximately 850,000 shares of the
Company's common stock in exchange for all of the
outstanding stock of NCF. Accordingly, the
consolidated financial statements for periods prior to
the combination have been restated to include the
accounts and results of operations of NCF. The Company
incurred nonrecurring merger expenses of $3.8 million
in 1999 associated with the NCF merger. These expenses
included professional fees and transaction costs, as
well as certain contractual payments to NCF employees.
The results of operations of the Company and NCF,
including the related $3.8 million of nonrecurring
merger expenses, and the combined amounts presented in
the accompanying consolidated financial statements are
summarized below:
Three Months Ended
(In thousands) April 3, 1999
Net sales:
The Company $ 444,883
NCF 21,495
Combined $ 466,378
Net earnings(loss):
The Company $ 3,228
NCF (2,577)
Combined $ 651
Adjustments to conform NCF's accounting methods
and practices to those of the Company consisted
primarily of depreciation and were not material. NCF,
prior to the merger with the Company, was treated as an
S-corporation for Federal income tax purposes. The
following disclosures present the combined results of
operations, excluding nonrecurring merger expenses of
$3.8 million, as if NCF was taxed as a C-corporation
for the period presented:
Three Months Ended
(In thousands, except per share amounts) April 3, 1999
Operating profit $ 6,280
Other income (expense):
Interest expense (1,286)
Other, net (6)
Other expense, net (1,292)
Earnings before income taxes 4,988
Income tax expense 1,920
Net earnings $ 3,068
Weighted average common shares outstanding 13,479
Basic net earnings per common share $ 0.23
Weighted average common shares and dilutive
potential common shares outstanding 14,187
Diluted net earnings per common share $ 0.22
On August 28, 1999, the Company acquired the
common stock of Dixon Tom-A-Toe Companies, Inc.
("Dixon"), an Atlanta-based privately owned processor
of fresh-cut produce. Dixon had operations in the
Southeastern and Midwestern United States. Its
operations have been combined with the operations of
Fresh Advantage, Inc. On August 31, 1999, AFI Food
Service Distributors, Inc. ("AFI"), a subsidiary of the
Company, acquired certain net assets of State Hotel
Supply Company, Inc. ("State Hotel"), a privately owned
meat processor based in Newark, New Jersey. State
Hotel provides Certified Angus Beef and other meats to
many of the leading restaurants and food retailers in
New York City and the surrounding region. The
financial results of State Hotel have been combined
with the operations of AFI. On December 13, 1999,
Virginia Foodservice Group ("VFG"), a subsidiary of the
Company, acquired certain net assets of Nesson Meat
Sales ("Nesson"), a privately owned meat processor
based in Norfolk, Virginia. Nesson supplies Certified
Angus Beef and other meats to many leading restaurants
and other foodservice operations in the Tidewater
Virginia area. The financial results of Nesson have
been combined with the operations of VFG. Together,
Nesson, Dixon and State Hotel had 1998 sales that will
contribute to the Company's ongoing operations of
approximately $100 million. The aggregate purchase
price for the common stock of Dixon and the net assets
of Nesson and State Hotel was $20.4 million. To fund
these acquisitions, the Company issued approximately
304,000 shares of its common stock and financed $11.9
million with proceeds from the Credit Facility (as
defined herein). The aggregate consideration payable
to the former shareholders of Dixon and State Hotel is
subject to increase in certain circumstances.
The acquisitions of Nesson, Dixon and State Hotel
have been accounted for using the purchase method;
therefore, the acquired assets and liabilities have
been recorded at their estimated fair values at the
dates of acquisition. The excess of the purchase price
over the fair value of tangible net assets acquired was
approximately $19.8 million and is being amortized on a
straight-line basis over estimated lives ranging from 5
to 40 years.
The consolidated statements of earnings and cash
flows reflect the results of these acquired companies
from the dates of acquisition through April 1, 2000.
The unaudited consolidated results of operations on a
pro forma basis as though these acquisitions had been
consummated as of the beginning of 1999 are as follows:
Three Months Ended
(In thousands, except per share amounts) April 3, 1999
Net sales $ 489,504
Gross profit 67,882
Net loss (300)
Basic net loss per common share $ (0.02)
Diluted net loss per common share (0.02)
The pro forma results are presented for information
only and are not necessarily indicative of the operating
results that would have occurred had the Nesson, Dixon and
State Hotel acquisitions been consummated as of the
beginning of 1999.
3. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information for
the 2000 quarter and the 1999 quarter are as follows:
Three Months Ended
(In thousands) April 1, 2000 April 3, 1999
Cash paid during the period for:
Interest $ 615 $ 445
Income taxes $ 1,759 $ 123
4. Industry Segment Information
The Company has three reportable segments: broadline
foodservice distribution ("Broadline"); customized
foodservice distribution ("Customized"); and fresh-cut
produce processing ("Fresh-Cut"). Broadline distributes
approximately 25,000 food and food-related products to a
combination of approximately 25,000 traditional and multi-
unit chain customers. Broadline consists of eleven
operating locations that independently design their own
product mix, distribution routes and delivery schedules to
accommodate the varying needs of their customers.
Customized focuses on serving certain of the Company's multi-
unit chain customers whose sales volume, growth, product
mix, service requirements and geographic locations are such
that these customers can be more efficiently served through
centralized information systems, dedicated distribution
routes and relatively large and consistent orders per
delivery. The Customized distribution network covers 50
states and several foreign countries from five distribution
facilities. Fresh-Cut processes and distributes a variety
of fresh produce primarily for quick-service restaurants
mainly in the Southeastern and Southwestern United States.
Certain 1999 amounts have been reclassified to conform to
the 2000 presentation consistent with management's reporting
structure.
Corporate &
(In thousands) Broadline Customized Fresh-Cut Intersegment Consolidated
First Quarter 2000
Net external sales $ 301,644 $ 246,144 $ 31,962 $ - $ 579,750
Intersegment sales 878 - 6,306 (7,184) -
Operating profit 5,223 2,135 1,956 (1,750) 7,564
Total assets 312,017 112,069 51,229 12,313 487,628
Interest expense(income) 1,701 874 313 (1,499) 1,389
Depreciation and amortization 2,738 503 813 78 4,132
Capital expenditures 5,539 138 4,322 981 10,980
First Quarter 1999
Net external sales $ 269,679 $ 180,976 $ 15,723 $ - $ 466,378
Intersegment sales 760 - 3,000 (3,760) -
Operating profit 4,551 1,997 835 (1,103) 6,280
Total assets 288,111 85,499 14,251 9,251 397,112
Interest expense(income) 1,572 551 (2) (835) 1,286
Depreciation and amortization 2,370 477 359 47 3,253
Capital expenditures 2,950 421 329 228 3,928
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company markets and distributes a wide variety of
food and food-related products to the foodservice, or "away-
from-home" eating industry. The foodservice industry
consists of two major customer types: "traditional"
foodservice customers, consisting of independent
restaurants, hotels, cafeterias, schools, healthcare
facilities and other institutional customers, and "multi-
unit chain" customers, consisting of regional and national
quick-service restaurants and casual dining restaurants.
The principal components of the Company's expenses include
cost of goods sold, which represents the amount paid to
manufacturers and growers for products sold, and operating
expenses, which include primarily labor-related expenses,
delivery costs and occupancy expenses.
As a result of the merger with NorthCenter Foodservice
Corporation ("NCF") on February 26, 1999, the consolidated
financial statements for the periods prior to the
combination have been restated to include the accounts and
results of operations of NCF.
Results of Operations
The following table sets forth, for the periods indicated,
the components of the condensed consolidated statements of
earnings expressed as a percentage of net sales:
Three Months Ended
April 1, 2000 April 3, 1999
Net sales 100.0 % 100.0 %
Cost of goods sold 86.6 86.5
Gross profit 13.4 13.5
Operating expenses 12.1 12.2
Operating profit 1.3 1.3
Other expense, net 0.2 1.1
Earnings before income taxes 1.1 0.2
Income tax expense 0.4 0.1
Net earnings 0.7 % 0.1 %
Comparison of Periods Ended April 1, 2000 and April 3, 1999
Net sales increased 24.3% to $579.8 million for the
three months ended April 1, 2000 (the "2000 quarter") from
$466.4 million for the three months ended April 3, 1999 (the
"1999 quarter"). Net sales in the Company's existing
operations increased 19.7% over the 1999 quarter while
acquisitions contributed the remaining 4.6% of the Company's
total sales growth. Inflation was not significant in the
2000 quarter.
Gross profit increased 22.9% to $77.4 million in the
2000 quarter from $63.0 million in the 1999 quarter. Gross
profit margin decreased to 13.4% in the 2000 quarter
compared to 13.5% in the 1999 quarter. The decrease in
gross profit margin was due primarily to the acquisition of
Dixon Tom-A-Toe Companies, Inc. ("Dixon") in the third
quarter of 1999. The gross margins of the Dixon locations
are slightly lower than the gross margins of some of the
Company's other operations.
Operating expenses increased 23.2% to $69.8 million in
the 2000 quarter compared with $56.7 million in the 1999
quarter. As a percentage of net sales, operating expenses
decreased to 12.1% in the 2000 quarter from 12.2% in the
1999 quarter. Operating expenses as a percentage of net
sales were higher in the 1999 quarter primarily due to start-
up costs for two new distribution centers that replaced
older, less efficient facilities.
Operating profit increased 20.4% to $7.6 million in the
2000 quarter from $6.3 million in the 1999 quarter.
Operating profit margin was at 1.3% for both the 2000 and
1999 quarters.
Other expense, net, decreased to $1.3 million in the
2000 quarter from $5.1 million in the 1999 quarter.
Included in other expense, net, in the 2000 quarter was
interest expense of $1.4 million, compared with interest
expense of $1.3 million in the 1999 quarter. In addition,
in the 1999 quarter, the Company had nonrecurring merger
expenses related to the NCF merger of $3.8 million.
Income tax expense increased to $2.4 million in the
2000 quarter from $525,000 in the 1999 quarter primarily as
a result of higher pre-tax income compared to the year-
earlier period. As a percentage of earnings before income
taxes, the provision for income taxes was 38.0% and 44.6%
for the 2000 and 1999 quarters, respectively. The
fluctuation in the effective tax rate is due primarily to
the merger with NCF, which was taxed as an S-corporation for
income tax purposes prior to the merger with the Company
during the first quarter of 1999.
Net earnings increased to $3.9 million in the 2000
quarter compared to $651,000 in the 1999 quarter. As a
percentage of net sales, net earnings increased to 0.7% in
the 2000 quarter compared to 0.1% in the 1999 quarter. Net
earnings for the 1999 quarter were impacted by nonrecurring
merger expenses related to the acquisition of NCF.
Liquidity and Capital Resources
The Company has historically financed its operations
and growth primarily with cash flows from operations,
borrowings under its credit facility, operating leases,
normal trade credit terms and the sale of the Company's
common stock. Despite the Company's large sales volume,
working capital needs are minimized because the Company's
investment in inventory is financed principally with
accounts payable and outstanding checks in excess of
deposits.
Cash provided by operating activities was $10.2 million
and $5.1 million for the 2000 and 1999 quarters,
respectively. In the 2000 quarter, the primary sources of
cash for operating activities were net earnings and
increased levels of trade payables and accrued expenses,
partially offset by increased levels of trade receivables
and inventories. In the 1999 quarter, the primary sources
of cash for operating activities were net earnings and
increased levels of trade payables and accrued expenses.
Cash used by investing activities was $12.6 million and
$8.7 million for the 2000 and 1999 quarters, respectively.
The Company's capital expenditures for the 2000 quarter and
the 1999 quarter were $11.0 million and $3.9 million,
respectively. The Company anticipates that its total
capital expenditures for fiscal 2000 will be approximately
$26 million. Cash used by investing activities also
included $1.7 million and $4.4 million paid to the former
shareholders of Affiliated Paper Companies, Inc. ("APC") and
Virginia Foodservice Group, ("VFG"), respectively, related
to the achievement of certain performance criteria under the
purchase agreements in the 2000 quarter and the 1999
quarter, respectively.
Cash flows used by financing activities was $1.3
million in the 2000 quarter and cash provided by financing
activities was $3.3 million in the 1999 quarter. Financing
activities include net repayments in the 2000 quarter of
$5.0 million and net borrowings in the 1999 quarter of $14.4
million on the Company's revolving credit facility. In the
2000 quarter, the Company used $6.6 million to repurchase
shares of its common stock in the open market. Also, in the
2000 quarter, cash flows from financing activities included
an increase in outstanding checks in excess of deposits of
$6.8 million and proceeds of $2.7 million from the
Industrial Revenue Bonds to finance the construction of a
new produce-processing facility. Financing activities in
the 1999 quarter included a decrease in outstanding checks
in excess of deposits of $2.7 million, repayments of long-
term debt of $8.6 million, and $1.0 million distributed to
the former shareholders of NCF prior to the merger.
On March 5, 1999, the Company entered into an $85.0
million revolving credit facility with a group of commercial
banks that replaced the Company's existing $30.0 million
credit facility. In addition, the Company entered into a
$5.0 million working capital line of credit with the lead
bank of the group. Collectively, these two facilities are
referred to as the "Credit Facility." The Credit Facility
expires in March 2002. Approximately $30.0 million was
outstanding under the Credit Facility at April 1, 2000. The
Credit Facility also supports up to $10.0 million of letters
of credit. At April 1, 2000, the Company was contingently
liable for $6.3 million of outstanding letters of credit
that reduce amounts available under the Credit Facility. At
April 1, 2000, the Company had $53.7 million available under
the Credit Facility. The Credit Facility bears interest at
LIBOR plus a spread over LIBOR, which varies based on the
ratio of funded debt to total capital. At April 1, 2000,
the Credit Facility bore interest at 6.43%. Additionally,
the Credit Facility requires the maintenance of certain
financial ratios as defined in the credit agreement.
On March 19, 1999, $9.0 million of Industrial Revenue
Bonds were issued on behalf of a subsidiary of the Company
to finance the construction of a produce-processing
facility. Approximately $7.3 million of the proceeds from
these bonds have been used and are reflected on the
Company's consolidated balance sheet as of April 1, 2000.
Interest varies as determined by the remarketing agent for
the bonds and was approximately 4.10% at April 1, 2000. The
bonds are secured by a letter of credit issued by a
commercial bank and are due in March 2019.
During the third quarter of 1999, the Company increased
its master operating lease facility from $42.0 million to
$47.0 million. This facility is used to construct or
purchase four distribution centers. Two of these
distribution centers became operational in early 1999, and
two are planned to become operational during 2000. Under
this facility, the lessor owns the distribution centers,
incurs the related debt to construct the facilities and
thereafter leases each facility to the Company. The Company
has entered into a commitment to lease each facility for a
period beginning upon the completion of each facility and
ending on September 12, 2002, including extensions. Upon
the expiration of each lease, the Company has the option to
renegotiate the lease, sell the facility to a third party or
purchase the facility at its original cost. If the Company
does not exercise its purchase options, the Company has
maximum residual value guarantees of 88% of the aggregate
property cost. The Company expects the fair value of the
properties included in this facility to eliminate or
substantially reduce the Company's exposure under the
residual value guarantees. Through April 1, 2000,
construction expenditures by the lessor were approximately
$37.5 million.
The Company believes that cash flows from operations
and borrowings under the Company's credit facilities will be
sufficient to finance its operations and anticipated growth
for the foreseeable future.
Business Combinations
On February 26, 1999, the Company completed a merger
with NCF in which NCF became a wholly owned subsidiary of
the Company. NCF was a privately owned foodservice
distributor based in Augusta, Maine and had 1998 net sales
of approximately $98 million. The merger was accounted for
as a pooling-of-interests and results in the issuance of
approximately 850,000 shares of the Company's common stock
in exchange for all of the outstanding stock of NCF.
Accordingly, the consolidated financial statements for
periods prior to the combination have been restated to
include the accounts and results of operations of NCF.
On August 28, 1999, the Company acquired the common
stock of Dixon, an Atlanta-based privately owned processor
of fresh-cut produce. Dixon had operations in the
Southeastern and Midwestern United States. Its operations
have been combined with the operations of Fresh Advantage,
Inc. On August 31, 1999, AFI Foodservice Distributors, Inc.
("AFI"), a subsidiary of the Company, acquired certain net
assets of State Hotel, a privately owned meat processor
based in Newark, New Jersey. State Hotel provides Certified
Angus Beef and other meats to many of the leading
restaurants and food retailers in New York City and the
surrounding region. The financial results of State Hotel
have been combined with the operations of AFI. On December
13, 1999, VFG, a subsidiary of the Company, acquired certain
net assets of Nesson Meat Sales ("Nesson"), a privately
owned meat processor based in Norfolk, Virginia. Nesson
supplies Certified Angus Beef and other meats to many
leading restaurants and other foodservice operations in the
Tidewater Virginia area. The financial results of Nesson
have been combined with the operations of VFG. Together,
Nesson, Dixon and State Hotel had 1998 sales that will
contribute to the Company's ongoing operations of
approximately $100 million. The aggregate purchase price
for the common stock of Dixon and the net assets of Nesson
and State Hotel was $20.4 million. To fund these
acquisitions, the Company issued approximately 304,000
shares of its common stock and financed $11.9 million with
proceeds from the Credit Facility. The aggregate
consideration payable to the former shareholders of Dixon
and State Hotel is subject to increase in certain
circumstances.
The acquisitions of Nesson, Dixon and State Hotel have
been accounted for using the purchase method; therefore, the
acquired assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition. The
excess of the purchase price over the fair value of tangible
net assets acquired was approximately $19.8 million and is
being amortized on a straight-line basis over estimated
lives ranging from 5 to 40 years.
Recently Issued Accounting Pronouncements
During 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activity which is effective for periods beginning
after June 15, 1999. In May 1999, the FASB issued SFAS No.
137, Deferral of the Effective Date of SFAS 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS No.
137 delayed the effective date of SFAS No. 133 by one year.
The Company will be required to adopt the provisions of this
standard with the fiscal year beginning on December 31,
2000. Management believes the effect of the adoption of
this standard will be limited to financial statement
presentation and disclosure and will not have a material
effect on the Company's financial condition or results of
operations.
Forward-Looking Statements
The Company has made certain forward-looking statements
in this quarterly report and in other contexts that are
based on estimates and assumptions and involve risks and
uncertainties, including, but not limited to, general
economic conditions, the reliance on major customers, the
Company's anticipated growth and other financial issues.
Whether such forward-looking statements, which depend on
these uncertainties and future developments, ultimately
prove to be accurate cannot be predicted.
Item 3. Quantitative and Qualitative Disclosures About
Market Risks
The Company's primary market risks are related to
fluctuations in interest rates and changes in commodity
prices. The Company's primary interest rate risk is from
changing interest rates related to the Company's long-term
debt. The Company currently manages this risk through a
combination of fixed and floating rates on these
obligations. For fixed-rate debt, interest rate changes
affect the fair market value but do not impact earnings or
cash flows. For floating-rate debt, interest rate changes
generally do not affect the fair market value but impact
future earnings and cash flows, assuming other facts remain
constant. As of April 1, 2000, the Company's total debt
consisted of fixed and floating rate debt of $50.0 million
and $40.6 million, respectively. Substantially all of the
Company's floating rate debt is based on LIBOR.
From time to time, the Company uses forward swap
contracts for hedging purposes to reduce the effect of
changing fuel prices. These contracts are recorded using
hedge accounting. Under hedge accounting, the gain or loss
on the hedge is deferred and recorded as a component of the
underlying expense. As of April 1, 2000, the Company had no
outstanding forward swap contracts.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security
holders during the quarter ended April 1, 2000.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits:
15 Letter regarding unaudited financial information from
KPMG LLP
27.1 Financial Data Schedule (SEC only)
(b.) No reports on Form 8-K were filed during the
quarter ended April 1, 2000.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
PERFORMANCE FOOD GROUP COMPANY
By: /s/ Roger L. Boeve
Roger L. Boeve
Executive Vice President &
Chief Financial Officer
Date: May 15, 2000